We initiate our coverage on Cerner Corporation (CERN), a leading vendor of Electronic Health Record (“EHR”) and other healthcare IT services (“HCIT”), with a Neutral rating. Cerner is not simply a play on the U.S. stimulus. Instead, it offers a limited exposure to worldwide healthcare automation. Besides, Cerner enjoys a multitude of burgeoning growth drivers, other than international sales.
The company’s second-quarter 2011 earnings per share of 42 cents beat the Zacks Consensus Estimate by a penny. Cerner had revenues of $1,850 million in the quarter, of which System sales and Support, maintenance and services comprised about 29.7% and 68.5%, respectively.
Cerner remains the trendsetter among pure-play, publicly-traded HCIT vendors. The company has domain expertise and its wide foot-print, large reference-able client base and composite array of solutions make it an ideal candidate for investors seeking an exposure to the industry.
We believe Cerner is one of the better placed clinical technology vendors to benefit from high HCIT spending over the next few years besides tapping into the robust replacement market. Most of the risk associated with the company is perceived as industry-wide in nature with few predictable company specific risk factors.
Cerner is diversified not only on a global basis but serves both hospitals and ambulatory outfits. It is one of only two vendors that are reportedly gaining market share in the medium- to large-hospital space.
We believe long-term investors may consider Cerner, which serves a sizeable installed hospital base that requires composite clinically-focused applications complying with “meaningful use” requirements, reimbursement problems and complex coding challenges. The company has long-standing, integrated and seamless solutions for both inpatient and ambulatory settings.
We expect Cerner to expand operating margin by improving time required for implementation. This means that the company continues to push for higher levels of automation for its implementation of systems. As a result, we expect high teens, or even higher, earnings growth to benefit investors, even in the absence of multiple expansion.
On the negative side, the federal Stimulus program will gradually wind down. Moreover, the favorable growth prospects are already factored into the stock price and the risk-reward trade-off is fairly poised. Cerner faces stiff competition from established HCIT players, such as Athenahealth (ATHN), Allscripts-Misys (MDRX) and Quality Systems (QSII) and many others in a crowded field.
ATHENAHEALTH IN (ATHN): Free Stock Analysis Report
CERNER CORP (CERN): Free Stock Analysis Report
ALLSCRIPTS HLTH (MDRX): Free Stock Analysis Report
QUALITY SYS (QSII): Free Stock Analysis Report
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